DoorDash CEO Tony Xu never expected that people would pay as much as they do for food delivery.
The delivery service became one of the biggest companies in tech by delivering food, groceries, and other purchases to customers’ homes for a premium over in-store ordering. And people continue to spend on food delivery, even as some cut back on groceries and other essentials.
People’s willingness to pay extra for the convenience of delivery has surprised even Xu himself, he told the Uncapped with Jack Altman podcast in an episode published on Tuesday.
“Was that obvious to you in 2013 that it would go this way?” Altman, brother of OpenAI CEO Sam Altman, asked. “People pay like $35 for a burrito.”
“No, it was not obvious,” Xu said. DoorDash’s partnership with Taco Bell provides a clear example of why, he added.
In July 2015, DoorDash started delivering Taco Bell orders in 90 cities in California and Texas. It was DoorDash’s first national delivery partnership, and the first delivery agreement that Taco Bell struck with a third-party delivery service, Xu said.
It’s not that people didn’t want to get crunchwrap supremes and Mexican pizzas delivered to their front doors, Xu said. Rather, customers would have to pay extra for delivery, both with a fee as well as higher item costs.
At the time, it seemed like a tough sell, especially for relatively cheap fast-food meals, Xu said. “I was actually quite skeptical whether or not it would work,” he said.
These days, DoorDash offers Taco Bell delivery across the US. It also works with many other national restaurant chains, from McDonald’s to Subway — all signs that diners are willing to pay more for delivery than Xu imagined in DoorDash’s early years.
The company has also repeatedly adjusted its fee structure, most recently earlier this month, saying how much customers paid would better reflect factors such as order size and delivery distance.
People continue paying a premium for food delivery even as other living costs, including buying a house and car ownership, have also increased, Altman said. “It’s a little counterintuitive,” he said.
Xu responded that people decide what to eat between 20 and 25 times a week — a lot of work, even if you’re used to cooking, he said.
More customers now pay extra for delivery from DoorDash because they want to spend the time that they might have used to cook or drive to a restaurant on other things, such as work, he added.
Meals delivered to customers’ homes aren’t “an indulgence anymore,” he said. “People always want to find a way to feel good.”
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